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Inside the Market This growth-oriented RRSP portfolio is both simple and smart

ETFs holding a diversified blend of investments have been around for 18 months or so, but we’re still learning about the many ways to put them to work.

Here’s one I just heard about from a reader and wanted to share because it’s both simple and smart at the same time. Just combine a diversified exchange-traded fund holding all stocks with a guaranteed investment certificate and there you go.

I know, I know. Aren’t these diversified products, sometimes called balanced ETFs, supposed to be a fully diversified portfolio in a single package, with both stocks and bonds? Yes, but what if you like to get exposure to stocks with ETFs, but prefer GICs as a substitute for bonds?

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This reader is proposing to build a $150,000 registered retirement savings plan account with a two-thirds weighting in stocks and one-third in fixed income. The foundation will be a $100,000 investment in the Vanguard All-Equity ETF Portfolio (VEQT), which is part of the company’s lineup of balanced ETFs (Vanguard calls them asset allocation funds). VEQT’s holdings: 40 per cent United States, 30 per cent Canada and 30 per cent outside North America. The management-expense ratio for this fund should be in the range of 0.24 per cent (it’s too new to publish an MER, but the management fee is 0.22 per cent).

For the fixed income side of the portfolio, this reader has selected a five-year GIC issued by a new online bank called motusbank with a yield of 3.2. That’s a strong rate by current standards and you get the usual benefit of holding a GIC for fixed income. GICs are illiquid, but they don’t change in value when interest rates shift. Bond ETFs fall in price when interest rates rise and do well at times, like now, when rates are falling. Yields for bond ETFs tracking the entire bond market are in the range of 2.1 per cent right now.

There’s a lot of convenience to a two-part portfolio of VEQT and a GIC, but also a logistical challenge. While you can buy VEQT from any online broker, you’ll need to deal directly with motusbank to get that GIC. You can’t combine the two in your brokerage account and one consolidated view of your entire portfolio. Brokers usually have their own selection of GICs, but it’s unlikely you’ll see anything close to 3.2 per cent.

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